Many people get caught up on their three-digit credit score, but the score itself doesn’t mean a whole lot if there aren’t “seasoned trade lines” to back it up.
Seasoned trade lines are lines of credit, whether they be credit cards, auto loans/leases, home equity lines of credit, etc, that have been open and active for at least 24 months. Anything short of that really carries little weight when applying for a large loan such as a mortgage.
A borrower may have an 800 credit score, but their credit report could be free of seasoned trade lines, basically turning what seemed like excellent credit into questionable credit status.
Most people don’t realize that credit depth is a major aspect of the credit scoring model, for both Fico score and VantageScore, and also a major determinant in deciding if someone will qualify for a loan, credit card, or a mortgage.
Let’s look at an example:
680 credit score
10 total trade lines
6 seasoned trade lines
740 credit score
3 total trade lines
0 seasoned trade lines
Now suppose both Borrower A and Borrower B apply for a home loan with the same lender, assuming they both have a similar borrowing profile aside from their credit history.
While Borrower B clearly has the higher credit score, Borrower A has seasoned trade lines on their credit report, and will have a much better chance of getting the home loan.
In fact, Borrower B will have a very difficult time obtaining a home loan, and could easily get denied based solely on the fact that they don’t have enough seasoned trade lines.
*Many lenders require a minimum of 3 open and active trade lines with at least a 24-month history.
So before you tell everyone about your perfect credit score, you may want to look beyond your credit score in determining your credit worthiness. After all, a bank is much more prone to lend to someone who has displayed a greater deal of credit responsibility than someone who is new to the credit game.